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be found in the listed rulings. We disagree. As the ensuing
discussion will show, the listed rulings’ application of
substance-over-form principles to the capitalization of a finance
subsidiary is decidedly more lax-–that is, more deferential to
form than substance–-than the position urged by respondent in
this case.
The seminal listed ruling, Rev. Rul. 69-377, 1969-2 C.B.
231, afforded recognition to a finance subsidiary’s role as the
issuer of debt in the following circumstances. A domestic
corporation, X, formed a wholly owned domestic finance
subsidiary, Y, for the purpose of Y borrowing funds from foreign
persons to be re-lent to or invested in certain foreign
affiliates of X. X contributed $5,000x to the capital of Y. Y
then sold $25,000x of 20-year debt obligations to foreign persons
through a public offering in foreign countries and invested in or
lent to the foreign affiliates of X the funds thus derived. The
debt obligations sold by Y were convertible into the capital
stock of X, and X guaranteed repayment as well as performance of
the conversion feature.
The ruling recognized the debt obligations sold by Y but
guaranteed by X as the indebtedness of Y, the finance subsidiary.
As two of the subsequent listed rulings make clear,17 the basis
17 See Rev. Rul. 70-645, 1970-2 C.B. 273; Rev. Rul. 73-110,
1973-1 C.B. 454.
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